The New Jersey Tax Court denied the Division of Taxation’s motion for reconsideration and again found that the Alternative Minimum Tax is preempted by P.L. 86-272. Previously, the New Jersey Tax Court granted summary judgment in favor of the taxpayer and held that the AMA, which was repealed for tax years beginning on or after January 1, 2018, is preempted by P.L. 86-272, a federal statute that bars states from imposing a net income tax on certain out-of-state sellers of tangible goods with specific limited contacts in a state. While the Division agreed the taxpayer was not subject to the Corporation Business Tax, it argued that P.L. 86-272 entities are subject to the AMA. In denying the Division’s motion for reconsideration, the court considered that under the AMA, P.L. 86-272 taxpayers pay the lesser of the CBT or the AMA. It stated that when the AMA is greater than the CBT, the AMA clearly operates as an end-run around P.L. 86-272. When the AMA is greater than the CBT, the AMA becomes a tax measured by net income because the taxpayer would be paying the CBT. However, even if the AMA is lower than the CBT, the court reasoned that Congress indicated that there shall be no net income tax, not merely a reduction that is collected in the form of the AMA: “[r]egardless of whether the amount assessed is above or below the CBT, the AMA is inextricably linked to the CBT.” The court concluded that the legislature cannot create a special gross receipts tax that only applies to P.L. 86-272 entities in an attempt to garner lost net income tax. It determined that “the presumption against preemption is overcome since the clear purpose of Congress in enacting P.L. 86-272 is effectively thwarted by the Legislature in enacting the AMA. As such, the AMA is subject to preemption.”

Stanislaus Food Products Co v. Div. Of Taxation, N.J. Tax. Ct. Dkt. No. 011050-2017 (Apr. 22, 2021)

The U.S. Solicitor General has filed its amicus brief in New Hampshire v. Massachusetts (here). The Solicitor General argues that the United States Supreme Court should not exercise its original jurisdiction and it should deny New Hampshire’s facial constitutional challenge of Massachusetts’ taxation of New Hampshire residents.

For background, on October 19, 2020 New Hampshire (on behalf of its residents) filed a motion for leave to file a bill of complaint with the U.S. Supreme Court that challenges the constitutionality of Massachusetts’s emergency regulation on telework during Covid-19, 830 CMR 62.5A.3. The Massachusetts emergency regulation imposes tax on wages earned by nonresidents who previously worked in Massachusetts, but commenced telework at their residence or other out-of-state location due to a “pandemic-related circumstance.” In effect, the Massachusetts emergency regulation resembles a “temporary” convenience of the employer test – similar to the one enforced by New York – that applies from March 10, 2020 until 90 days after the governor lifts the state’s Covid-19 emergency declaration. New Hampshire alleges several constitutional infirmities of the emergency regulation, including violations of the Commerce Clause and Due Process Clause. Massachusetts counters those violations in its opposition brief to the New Hampshire motion for leave. In addition to the substantive issues raised, Massachusetts alleges that New Hampshire does not have standing to sue on behalf of its residents and, therefore, the Court should not exercise its original jurisdiction that applies to suits between states.

On January 25, 2021, the Court asked the Acting Solicitor General to file a brief expressing the views of the United States. The Solicitor General summarizes its argument as follows:

The motion for leave to file a bill of complaint should be denied. This is not an appropriate case for the exercise of this Court’s original jurisdiction, which the Court has repeatedly stated should be exercised only “sparingly.” Mississippi v. Louisiana, 506 U.S. 73, 76 (1992) (citation omitted). New Hampshire does not invoke the types of interests that would warrant such an exercise, and the issues New Hampshire seeks to present can adequately be raised and litigated by New Hampshire residents who are subject to the Massachusetts income tax. In addition, the constitutional claims would more appropriately be considered on developed factual records concerning affected individuals and with the benefit of authoritative interpretations of the relevant tax provisions by Massachusetts courts.

Brief for the United States as Amicus Curiae, as Amicus Curiae, New Hampshire v. Massachusetts, No. 22O154, May 25, 2021.

As with any dispute between states, New Hampshire v. Massachusetts has generated interest among taxpayers and state governments alike. Of note, in addition to the Solicitor General’s brief, a number of amici curiae filed briefs in support of the respective parties, including a group of ten states in support of New Hampshire (the “Ohio Brief”) and a group of four states also in support of New Hampshire (the “New Jersey Brief”). Interestingly, the Ohio Brief focuses on original jurisdiction – arguing the Court must review disputes between states. In contrast, the New Jersey Brief addresses the substantive constitutional issues.

Eversheds Sutherland SALT will continue monitoring this important and interesting case.

On Friday, June 4, 2021 at 10:00 a.m. PST, the California Franchise Tax Board (“FTB”) will hold its sixth interested parties meeting (“IPM”) to discuss its latest proposed amendments to the market-based sourcing regulation, Cal. Code Regs., Title 18, Section 25136-2. At the IPM, FTB will discuss and solicit public input on the newly-proposed regulation language and will walk through FTB’s explanation of the new language. Additional information on the IPM, including how to dial-in, is available here.

Please see our previous posts here and here for background on FTB’s proposed amendments to the market-based sourcing regulation. We will provide additional coverage after the meeting.

 

On May 20, 2021, California AB 71 was approved by the Assembly Appropriations Committee. The bill will now head to an Assembly floor vote within the next two weeks.  Please see our previous post here for more information on AB 71’s proposed corporate tax increases, including the inclusion of GILTI and repatriation income of affiliated corporations in a California taxpayer’s gross income.

In this episode of the SALT Shaker Podcast policy series, Erica Kenney, West Coast Counsel of the Council On State Taxation (COST) and Jeff Newgard, Principal and Owner of Peak Policy, join host and Partner Nikki Dobay for a discussion of proposed legislation in Oregon and Colorado. Who knew they would be sharing tax haven “blacklist” stories? Both states still have a long way to go before sine die, but it is a good point in time for listeners to get a sense of where things are with respect to several proposals.

The podcast ends with a new feature — “surprise nontax question” — that host, Nikki Dobay, and her guests each answer!

The Eversheds Sutherland State and Local Tax team has been engaged in state tax policy work for years, tracking tax legislation, helping clients gauge the impact of various proposals, drafting talking points and rewriting legislation. This series, which is focused on state and local tax policy issues, is hosted by Partner Nikki Dobay, who has an extensive background in tax policy.

Questions or comments? Email SALTonline@eversheds-sutherland.com.

 

 

 

 

 

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On May 18, Eversheds Sutherland SALT attorneys presented at the TEI Denver state and local tax seminar on a variety of state and local tax topics. PowerPoint slides for our presentations can be found below.

Presentations include:

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Which state recently proposed legislation that would create a wage compensation tax?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card.

Answers will be posted on Saturdays in our SALT Weekly Digest. Be sure to check back then!

On May 7, 2021, the Washington Department of Revenue issued Excise Tax Advisory 3223.2021, providing guidance on the proper taxation of grocery food and restaurant delivery services provided through marketplace facilitators. Marketplace facilitators that are facilitating the retail sale of prepared food or groceries through its marketplace are responsible for collecting and remitting sales tax on “the full selling price charged to the customer for taxable products, including delivery fees, service fees, and any other charges paid by the customer.” Thus, in a case where the total selling price is $50.00, comprised of $40.00 in prepared food, a $5.00 service fee, and a $5.00 delivery fee, the marketplace facilitator is responsible for collecting and remitting sales tax on the full $50.00 selling price. Marketplace facilitators that are facilitating the retail sale of prepared food or groceries are also subject to Washington business and occupation tax (“B&O tax”) under the “service and other business activities” classification. The marketplace facilitator’s gross income subject to tax includes “all of its commissions, delivery fees, service fees, other fees, and other income for facilitating marketplace sales, whether paid to the marketplace facilitator by the seller or by the purchaser.”  For marketplace facilitators that use third-party delivery partners with whom they have a separate contract, the marketplace facilitator remains obligated to report all commissions, service fees, and delivery fees for B&O purposes, without deducting any payment or portion of the fees the marketplace facilitator pays to its third-party delivery partners. The ETA also clarifies marketplace facilitators’ tax collection and remittance obligations under various other arrangements it may have for the delivery of restaurant or grocery food.

Missouri is set to enact economic nexus requirements, asserting a sales and use tax collection obligation on remote sellers and marketplace facilitators. On May 14, 2021, the Missouri Legislature passed S.B. 153, which the governor is widely expected to sign. Upon signing, Missouri will join the other 44 states and the District of Columbia that have already enacted economic nexus provisions, making it the final state that imposes sales and use tax to enact economic nexus provisions. Under the bill, vendors with cumulative gross receipts from the sale of tangible personal property into the state of at least $100,000 in the previous or current calendar year will be required to collect and remit tax beginning on January 1, 2023. The bill also requires marketplace facilitators to collect and remit use taxes on behalf of the third-party sellers utilizing their platform beginning January 1, 2023. A “marketplace facilitator” is defined as a person that “facilitates a retail sale by a marketplace seller by listing or advertising for sale by the marketplace seller, in any forum, tangible personal property or services that are subject to tax,” and that “either directly or indirectly through agreements or arrangements with third parties collects payment from the purchaser and transmits all or part of the payment to the marketplace seller.” A “marketplace seller” is “a seller that makes sales through any electronic marketplace operated by a marketplace facilitator.”

On May 14, 2021, the House Finance Committee passed HB21-1311 and HB21-1312, but not without noteworthy amendments changing certain aspects of both bills.

HB21-1311, as introduced, would have repealed Colorado’s unique “3 of 6” test for determining C corporations that can be included in a combined report, and required “members of a unitary business” to file a combined report. The proposed repeal of the “3 of 6” test was short lived, however, as amendments to the bill keep the “3 of 6” regime in place. Thus, C corporations that satisfy the “3 of 6” test could continue to be included in a Colorado combined report under the amended version of the bill.  HB21-1311, as passed, continues to contain the tax haven “black list” provision and the provision that would move Colorado from “Joyce” to “Finnigan.”

The Committee also approved HB21-1312, which if enacted would codify the Department of Revenue’s current treatment of digital goods. Specifically, HB21-1312 would include “digital goods” in the definition of “tangible personal property,” and define “digital good” to mean “any item of tangible personal property that is delivered or stored by digital means, including but not limited to video, music, electronic books, or computer files.” The amendments to the bill, however, removed “computer files” from the proposed definition of “digital good.”

Although HB21-1311 and HB21-1312, with various amendments, were adopted by the House Finance Committee, they will not be formally incorporated into the bills unless they are adopted by the full House of Representatives. The amended bills now head to the House Appropriations Committee for review.